Tips On Paying Back Student Loans

Updated on September 3, 2012

Tips on Paying Back Student Loans

We've all heard the expression...."Payback's a b*!!ch" and truer words were never spoken when it comes to paying back student loans.

Student loans can become a huge financial drain for
graduates through no fault of their own.
Student loans carry with them a huge liability because those loans have
to be paid back no matter what. And these are serious numbers in terms of dollars!

However, let’s say that
you have an unexpected illness crop up or you get laid off or fired from your
job? What do you do about your student
loans?

Worrying about paying back student loans can cause a lot of
stress when life isn’t going the way it should be going anyway.

Let’s look at some strategies that can help students pay
back their loans without dragging them into the depths of despair over their very
indebtedness!

Paying Back Student Loans

With student loans, you do have grace periods that are built
in. But a student who has graduated or has
dropped his or her study load to less than half-time will have the clock start
ticking on their repayment program if they borrowed through federally guaranteed loan programs.

For federal loans such as Stafford loans (Direct Loan
Program) or FFEL loans (Federal Family Education Loan), six months after
graduation, you will be expected to begin repayment.

Federal Perkins loans will require you to start repayment 9
months after the above criteria have been met.

PLUS loans begin the date that the loan is given out and
payment is due within 60 days of the last payment given. However, a graduate student with a PLUS loan
or a parent with a PLUS loan who is also a student can defer repayment if the
borrower is enrolled at least half-time.
If loans were issued after July 1, 2008, the borrower has an additional 6 months after enrollment has dropped to less than half-time to begin
repayment. The bad news here is that the interest will continue to accrue.

Understanding Student Loans & Tips on Paying Them Back

Consistency counts. If at all possible, student loans should be paid on time and
by regular payments. If that seems to be
an issue, you can save money and avoid missing payments by having auto
withdrawals through your bank.

Just have
them set up an automatic transfer system every month and you’ll never be late
again on your student loan payment! Also
having automatic payments will help you save on your student loan. Most banks or lending institutions will shave
off a quarter point on your interest rate so be sure and ask for this! It’s not much but it’s something!

Check out repayment plans and calculators at
the federal student aid website for different ways of calculating
your repayment schedule. Remember that
student loans are just like a mortgage or a car loan and have to be paid back in full or you stand to be held in default on the loan.

Things change and crises occur sometimes in our financial
forecast. If you get fired from a job or
lose a job due to downsizing, etc. or you take a hit in your income, there are
ways to minimize the sting.

The
Department of Education has an income-contingency plan to cover occurrences
such as these and you an request an alternate payment plan. While these plans will unfortunately add
incredible amounts of interest to your loan because you have a longer time to
pay back the loan, it is the only option for some students who find that they
simply can’t afford to pay back the loan as agreed upon. Why? Because they were
counting on their income increasing and not decreasing!

Contact the Department of Education for income-contingent repayment plans. Also be aware that loans existing for over 25
years can be forgiven in the amount owing but the downside there is that the
amount that's erased is now added to your tax obligation. You have to pay taxes
on the amount that was erased or forgiven.

Loan consolidation. You can always combine loans and pay one monthly payment on several loans. You then have a longer period of time to pay
off the loans and you receive a new interest rate on the consolidative
loan. There is a law in effect that the
interest rate on these loans cannot exceed 8.25% but if you extend the life of
your loan, of course over time, you’ll pay loads of interest. The upside is that you can substantially reduce your monthly
repayment figure. In times of financial
struggling, this is a solution that a lot of students have to resort to.

Tax obligations and solutions. Thankfully, student loan taxes (if you're eligible) are deductible in the interest that you pay on them per year. There are income limits to qualify for
depending upon if you're single or a couple filing jointly, but check out the
maximum that you can deduct from your income tax for the interest that you pay
on your student loan.

Income Based Repayment. This is a help for many people who haven't gotten that better paying job they were hoping for after graduation. It is literally based on the amount of money you are making at the current time. Check out the video to learn more.

The final chapter for student loans. If all the above scenarios are still leaving
you inundated by your student loans, you can ask for deferment of payments or
something called forbearance. Even if
you’ve quit a job, you can petition whoever holds your loan to suspend or defer
loan payments. If this is a deferment on
a subsidized Stafford loan, the interest on the loan will be paid by the US
government during this suspended period of payment. If you return to school, you can also defer
or suspend your payments with the same scenario or if you get fired. Of course, this is a temporary measure and
you will eventually be required to begin paying back the loan.

What is forbearance? Forbearance is holding off payments of your student loan for
up to 1 year. You will still have the
interest clock ticking away adding to your loan but you are not considered to be skipping on your loan. The added benefit is that you'll avoid credit report hits that will
blemish your credit history. Forbearance
can also mean paying smaller payments or extending the length of
repayment.

Discharge or cancellation of student loans. In some cases, under certain circumstances,
student loans can be canceled or discharged and the student will not have to
repay the loan. Read about the
circumstances for discharge of student loans at the website below.

WHAT IF YOU DEFAULT ON YOUR STUDENT LOAN?

A student loan is a binding contract just like a mortgage or
a contract to purchase a car. The people
owed will take action against whoever holds the loan and is not making efforts
to repay or restructure payment.

Some of
the consequences:

Legal
action will occur and you will be sued

Your
credit rating with take a direct hit because all credit bureaus will be
contacted. This may impact future
borrowing power for things like homes, cars, etc. It can even impact trying to get a job

Your
wages can be garnished to pay the loans

Tax
refunds can and often are withheld to be applied to the loans that are
outstanding until paid

Late
fees and collection costs will also be added to what you owe

Student Loan Help Tips

Did You Know About Student Loans?

Cancellation or deferment of student loans for teachers is
available if you go into teaching in low-income or subject-matter shortage
areas of teaching. Check for further
details online. Stafford loans
can be canceled or deferred; Perkins loans can be also as well as FFELs. Check the website below for more information.

Working in public service can get the balance of your loan
forgiven after you’ve made 120 monthly payments that were on time. This applies to certain repayment plans after
October 1, 2007. Requirements are that you have to be employed full-time in a public service job during the period of time when the
qualifying payments were made. You have to be still working there when the cancellation is
granted. The remaining outstanding
balance of principal and accrued interest is the amount forgiven on eligible
Direct Loans. The loans must not be in
default, however. Again, check the
website below at the Public Service Loan Forgiveness page. These include Stafford loans, PLUS loans and
Federal consolidation loans.

Under these certain circumstances, your loans will be discharged
(canceled) or reduced:

You die (this isn't the best case scenario obviously)

You
become permanently and totally disabled and in some cases of illness

Your
school closed before you completed the program

You
work in certain designated public school service professions

Your
school owes your lender a refund or certifies that you didn’t have the ability
to benefit from the coursework you enrolled for

You
file for bankruptcy (but usually only if undue hardship can be proven in paying
back the loan) - you may still have to pay back the loan

Information on Student Loans

You can contact the US Department of Education’s National
Student Loan Data System (NSLDS) to get full information on your federal
loans. You can get information on the
loan type, the amounts borrowed, principal and interest that are outstanding
and the total amount of your loan. Go to
www.nslds.ed.gov to check on the status
of your loan.

You can also call the Federal Student Aid Information Center
at 1-800-433-3243 for assistance in figuring out your loan and the mechanics of
its repayment. For questions about
repaying FFEL, Direct Stafford or Perkins loans, contact your loan service provider
(contact the above number if you don't know who that is). If you have a Perkins loan, you should
contact the school that issued the loan.

At the website below, you can also check current interest
rates or find out more details on the type of student loan that you have along
with possible options such as consolidation, deferment or forbearance.

Paying off student loans is a necessary part of the
educational process but sometimes one that seems impossible after the fact.

Remember that they are considered binding legal
contracts. Failing to pay won’t take you
far in the job market nor will it help your credit by defaulting on them.

If you’re having trouble repaying your student loans or if
you have questions at all, contact professionals at the above websites and get
the help you need to work it out and keep yourself financially in good
standing.

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Comments 2 comments

akirchner 5 years ago from Central Oregon Author

Thanks, Simone - I didn't like including the 'easy way' of paying it off as in dying but I guess there are some things that are of benefit if you're 'not here'. Yikes! I know that student loans are crushing folks these days though - guess I'm glad I don't have that to worry about.

Simone Smith 5 years ago from San Francisco

Wow, I hadn't realized how many ways there were to cancel a student loan - fascinating! Fun new discoveries aside, this is a great guide. I appreciate how you've categorized your info into easy-to-skip-around-sections, included a helpful video, and included helpful references and links. Wonderful Hub!